Sharky Laguana is still advocating against Spotify’s royalty model. His latest post on Medium is called Streaming Music is Ripping You Off. As you can guess from the title, it’s not an exercise in subtlety. According to Laguana, streaming music services like Spotify are saying “Your choices don’t count, and you don’t matter,” and that “You Are Worthless.”
Just as I stated in Sharky Laguana and “Fair” Spotify Royalties, I believe (along with others like David Touve) that Laguana’s numbers don’t add up. He also consistently uses loaded terminology (“click” vs. “listen”), false dichotomies (“10,000 fans who stream a song once, or one fan who streams it 10,001 times”), and other rhetorical mistakes. It is not an article that is making an argument; it is an article that is meant to be inflammatory.
In it, he attempts to generate outrage for a campaign called “Silent September.” This is the plan: “This September, when you aren’t listening to music, put your favorite indie artists on repeat, and turn the sound down low.” The intent is to “make the problem so visible that the major labels feel it would be better to switch to a different system where this kind of manipulation isn’t possible.”
He also wrote a FAQ for that campaign. And, since I already wrote an article controverting his numbers, I thought it would be more fun to do a “FAQ” of my own.
Hey, I heard that Spotify is taking my subscription money and giving it to Top 40 artists. Are they counting my streams as streams for Katy Perry or something?
No, they absolutely are not.
You may get this impression if you didn’t get any further than the tl;dr version. But it’s not what is happening – and it’s not what Laguana is claiming either.
So, how is Spotify funneling my money to Top 40 artists?
That’s not exactly what’s happening either. If you listen to a track, Spotify pays royalties to the artists you listen to, and only the artists you listen to.
Well, what’s the deal then?
The issue is how Spotify calculates their per-stream royalties.
As I’m sure you’re aware, Spotify is a “flat-fee” service. Users pay a flat fee ($9.99 as of this writing), and use the service as much or as little as they like. Naturally, this means some users stream fewer tracks than average, and other users stream more tracks than average.
Spotify takes all of the subscription money, and puts it into a single “pool.” 70% of this pool goes to the various copyright holders, and 30% goes to Spotify. This means that 70% of your flat fee (we’ll round this to $7.00) goes to copyright holders, and…
Is he saying Spotify should take less than 30%?
No, he is not. Now stop interrupting!
Don’t be a dick, it was a fair question.
You’re right, I’m sorry.
So, what about per-stream royalties?
Currently, Spotify takes that “pool” of income, earmarked for copyright holders, and simply divides it by the total number of streams on the service. The result is considered the “per-stream” royalty.
Other people have called this the “pro rata” model, so I’ll use that term too.
Obviously, this royalty is not fixed. The total pool fluctuates according to the number of subscribers. But even with the same pool, the per-stream royalty fluctuates according to the total number of streams.
When you do the math, this means that Spotify users who stream fewer tracks than average drive the royalty rate up. Conversely, Spotify users who stream more tracks than average drive the royalty rate down.
So I should listen to less music, to drive the per-stream royalty rate up?
That is not what Laguana is saying. (It is a logical conclusion to his argument, but never mind.)
In fact, if you deliberately listen to less music, then according to Laguana’s logic, you would be “ripped off” more than you are right now.
It gets back to the variable number of streams per user. In effect, the lighter users are “subsidizing” the per-stream royalties of the heavier users.
If you are a Spotify user who streams fewer tracks than average, then you will increase the overall royalty rate. But you will also stream fewer tracks (obviously). The end result is that the royalties that go to the artists you listen to, will be less than the $7.00 generated by your subscription fee.
So, according to Laguana’s logic, Spotify is “ripping you off.”
If you are a Spotify user who streams more tracks than average, then you will decrease the overall royalty rate, but you will also stream a greater number of tracks. The end result is that the royalties that go to the artists you listen to, will be greater than the $7.00 generated by your subscription fee.
According to Laguana’s logic, you are “ripping off” Spotify.
Whoa, harsh language.
I’m just using exactly the same language that Laguana is using. If you think it’s harsh – and I would agree – then you should politely ask Laguana to stop using it, too.
Did Laguana actually say heavier listeners are ripping off Spotify?
Not in so many words – but that’s only because he doesn’t even consider users who listen to more streams than average because they’re music lovers.
He has not ever considered that it is the heavier user who is more likely to proselytize – to put your music in their playlists, to tell their friends, etc. They are more likely to come out to see your show. They are more likely to buy merch, “golden tickets,” or other scarce goods. They are more likely to support you on Kickstarter or Sellaband. (Lighter users can also do these things, of course, but they’re less likely to as a group.)
What he has mentioned are people who engage in bad behavior. He talks about “click fraudsters,” who use automated tools to artificially inflate stream counts (in violation of Spotify’s End User Agreement).
He also talks about the gym that he goes to, which (according to him) uses Spotify for background music twelve hours a day. This, of course, is also in violation of Spotify’s End User Agreement. (Spotify has started a service called Soundtrack Your Band to offer business licenses, but it’s not yet available outside of Sweden.) He also fails to mention that these businesses pay additional royalties to PRO’s like ASCAP and BMI – but never mind.
He has described heavy listeners as “trust-funders [who] have nothing better to do than kick out the jams all day long,” and his only example of a heavy listener is “one guy clicking on an artist 10,001 times.” (Don’t worry, dear reader, because he believes that “you” are one of the “10,000 fans who stream a song once.”)
So is Spotify the only business that runs this way?
Not even remotely. As far as I know, all streaming services use the pro rata model.
It’s also somewhat similar to how PRO’s like ASCAP and BMI pay out royalties. The performance royalties are pooled, and doled out according to which songs are the most popular by region. (Of course, they don’t have the atomic data that Spotify has. They rely on sampling the bigger radio stations, or auditing the larger venues – which means that they are much more biased towards popular acts. But that’s a story for another day.)
The “pro rata” model is also incredibly common in the wider world. Some examples:
- Libraries. Readers pay a single fee (through taxes if it’s a public library, fees if it’s a university library, etc.) but the library orders materials according to what is checked out the most.
- Subway passes. Riders pay a flat fee for a month-long pass, and use the subway as much or as little as they like.
- Lunch buffets. Diners pay a flat fee for an “all-you-can-eat” buffet.
I’m sure you can come up with more.
In all of these cases, light users end up subsidizing the costs of heavier users. And the heavier users have much more of an impact on spending policies (books ordered, subway resource allocation, ingredients ordered) than light users. But since the light users are still getting their money’s worth, nobody considers it unfair.
So what does Laguana want?
He advocates for a different method of calculating per-stream royalties. This method is commonly called the “subscriber share” model.
Instead of putting all the subscriber revenue into a big pool, it is kept separate. The per-stream rate is found by dividing that user’s subscription revenue by the number of streams that user listened to.
Under this model, your $7.00 is used to calculate the per-stream royalty of only those artists you listened to, and nobody else. Then, just like the pro rata model, the artists that you stream (and only those artists) are paid your custom per-stream royalty.
That actually sounds pretty fair.
It does, until you realize what the effects would be.
For Spotify users who stream fewer tracks than average, the per-stream royalty rate will be higher than it is now. These artists will make more money per stream than under the pro rata model.
For Spotify users who stream greater tracks than average, the per-stream royalty rate will be lower than it is now. These artists will make less money per stream than under the pro rata model.
So, if you’re an artist whose fan base consists of heavy users, you will do worse under Laguana’s proposal. The only artists who will benefit are those whose fan base consists of light users.
So it will penalize artists whose fans are music lovers, and reward artists whose fans are casual listeners?
Which artists are which?
It’s very hard to generalize about these things, but the “polyvore/monovore model” seems to be the most accurate. (Laguana does not believe this model is accurate, but I don’t know why.)
In this model, if a user listens to more music, then it will be music from a greater variety of artists (they are polyvores). The wider the variety of music, the more likely this music will come from artists who are less popular. A polyvore will certainly listen to Top 40 music, but they’ll listen to other music as well.
Conversely, if a user listens to less music, then it will be music from a smaller variety of artists (they are monovores). Since they listen to a narrower variety of music, it is more likely to be music by popular artists. Monovores don’t listen to much music that’s not in the Top 40, and when they do, it’s only on rare occasions.
Note that I do not mean Top 40 pop music, though this may be the case. Both monovores and polyvores could listen to nothing but metal, and both will listen to Metallica. But only a polyvore would listen to Butchers of the Final Frontier or Abnormity.
Because the omnivores generate higher per-stream royalty rates than polyvores, the subscriber share model ends up generating more revenue for popular artists (like Metallica) and less money for less-popular artists (like Abnormity).
So the rich get richer, and the poor get poorer?
This is fair?
That depends upon your point of view.
Are you, casual listener, offended that you are driving up the royalty rate for bands you don’t listen to? Are you, music lover, offended that you’re driving down the royalties for popular bands?
Do you not give a shit about artists that aren’t in the Top 40 of whatever genre you like?
If you answered “yes” to these questions, then the subscriber share model is fair. Otherwise the pro rata model is fair.
Personally, I like artists who aren’t popular artists. I want them to make more money from Spotify and services like it. And I don’t really care that casual listeners are “subsidizing” their royalties, just like I don’t care that other people ride the subway more than me.
So I do not think it’s fair. Not even remotely.
So I guess I shouldn’t do this Silent September thing?
On the contrary. You should do that.
It is true that participants will be driving down the per-stream royalty rate for everyone on Spotify, including the artists they are silently streaming.
This would be a problem if there were enough participants to affect the per-stream rate. There aren’t. Spotify has over 20 million subscribers. It would take a few million participants to drive down the per-stream royalty rate. Especially to the point where major labels would even notice the change. To major labels, it’s a rounding error.
But, thankfully, the indie musicians will get roughly the same per-stream royalties they get now. To less-popular artists, that “rounding error” will be a lot more money.
After that it’s business as usual.